10 Lessons Cyprus Is Teaching The World About Money & Gold

The Cypriot case is all over the place, in all types of media. However, it is amazing how the following simple facts remain underexposed. It is one thing to look at the news; it is another thing to look at the learning that comes out of the news.For those who are willing to see, here is what Cyprus is teaching the whole world about money, the debt crisis and gold.

The tragedy in Cyprus continues. Reuters reports today that the island is in an impasse as the initial proposal of past weekend was killed by the Parliament with 100% of the votes. Several alternative plans are being discussed behind the scenes. One of the potential scenarios is the Russians buying up one of the ailing Cypriot banks. Meantime it appears “EU officials voiced frustration but little sympathy for an ambitious but now bust banking system.” (via Reuters).

We wrote over the weekend our conclusion about the Cypriot case: Wakeup Call From Cyprus To The Rest Of The World. It was meant to help people SEE with their own eyes the truths and fundamentals behind the facts. Our article reached tens of thousands of readers.

The Cypriot case is all over the place, in all types of media. However, it is amazing how the following simple facts remain underexposed. It is one thing to look at the news; it is another thing to look at the learning that comes out of the news. For those who are willing to see, here is what Cyprus is teaching the whole world about money, the debt crisis and gold:

1. The counter-party risk has never been that high in history. Keeping your money in your savings account not only has no yield, but also has a risk of losing (part of) it to the bank itself.

One important message from this banking and public relations disaster is that, per the ECB, the money you put into the bank (for your checking or savings account) becomes a liability of the bank, and not a deposit placed there for safe keeping. In other words, a bank failure means some of the bank’s liabilities will not be repaid – such as some or all of your bank account.

2. Money in your bank is NOT safe. It appears incredibly difficult for people to understand this truth. In people’s mind, safety and banks go hand in hand, just like yin and yang or day and night.

Fractional reserve banking allows deposits to be loaned out many times. This increases bank profits. When an extraordinary number of individuals attempt to withdraw their deposits, a bank run occurs. The IMF-ECB demand that depositor money be partially confiscated suggests that many more people may want to withdraw funds from banks across Europe. This will discourage confidence in banking systems.

3. How is it possible that banks need their depositors’ money to survive when they borrow at 0% and lend at rates between 4% and 8%? It shows the whole banking system is truly ailing.

Since banks buy the bonds of insolvent countries, some defaults are to be expected. Adding leverage and derivatives increases the risk of default and bank failure. It appears that the world’s largest banks are heavily leveraged and holding a large quantity of “dodgy” assets that might better be described as toxic waste. The system survives on “extend and pretend” confidence and bailouts. Yes, the banking system is dangerously overextended and dependent upon central banks “printing money” to keep them alive.

4. Governments are truly desperate. Still they keep on pretending nothing major is going on. They have a plan for everything. But time and time again, they surprise us with unexpected major problems. The bankruptcies of major Spanish and Italians banks earlier this year are recent examples; the Cypriot thing is unimaginable.

Governments are heavily in debt and don’t control spending. They must maintain the cozy relationship with banks and central banks so they can borrow ever larger amounts from the banking system. The banking system is teetering near insolvency and must receive bailouts and the support of governments (example: allowing confiscation) to “extend and pretend” bad assets are actually good assets. Currently, governments are effectively taking assets from citizens via price inflation while paying low interest rates on deposits. It could escalate to Cyprus-style confiscation and pension plan nationalization.

5. Didn’t we learn only half a year ago from our European leaders that the debt crisis was solved? Didn’t we hear that they would do whatever it takes to get the economy rolling again? Either they truly don’t know what they are doing and talking about, either they are liars of the highest degree … or both.

“Extend and pretend” in both Europe and the United States will work until some “black-swan event” causes a loss of confidence in the banking system and creates a chain of bank failures and derivative destruction across Europe, Japan, and the United States. Think the assassination of Archduke Ferdinand in 1914 or the failure of Credit Anstalt Bank in Austria in 1931.

6. Cyprus is telling that the debt crisis is not over; it is only worsening.

Yes, indeed! If the 2008 financial crisis was the first wave of the debt and derivative crisis, perhaps the IMF-ECB-Cyprus fiasco marks the emergence of the world financial system from the “eye” of the debt hurricane and the reemergence of the destructive winds of insolvency and financial chaos.

7. The whole scenario was organized. The central bank blocked the electronic payment traffic in and out of Cyprus during the weekend. Cypriots feel betrayed. But who knows what other surprises our leaders are cooking for not-Cypriots?

If something like this happens in banking and politics, it was probably planned. What may not have been planned were the collateral damages and the unintended consequences. What the middle-class should expect is that their interests will be considered too little and too late to save most of them.

8. What did the financial and monetary system solve since the big crash in 2008? Indeed, nothing. The symptoms of the crisis are becoming worse. It means the true crash is yet to come.

National debt in the countries of the EU, Japan, and the United States is rising far more rapidly than economic activity can support. This can continue for a long time (it already has) but not forever. It seems likely that it will end with bang, not a whimper. Possibilities include a new monetary system, a devastating crash, another world war, confiscation of private assets, destruction of unbacked paper money, or various other unpleasant changes.

9. The key take-away in our humble opinion is that Cypriots holding physical gold and silver (or other tangible assets that preserve purchasing power) are not being touched by any means. Although we are 100% convinced of our point, we do not see this message appearing, nor do we hear people talking about it. Consider it a privilege if you have this insight or if you understood this learning.

The priority of the financial and political elite, banks, governments, and the media is to maintain the status quo – unbacked paper money. Don’t expect major media attention upon gold until it is too late for most people to preserve their assets and purchasing power with gold and silver.

10. Trust is what is touched much more than the bank accounts. The next crisis will be driven by trust. As our money system is only backed by trust (hence “fiat money”), you can be sure that our current money system can potentially be destroyed.

No unbacked paper money system has survived more than a few decades in the history of the world. Currently, not one currency is backed by anything more substantial than faith, credit, and trust in sovereign governments. Trust is weakening and that bodes poorly for a banking system based merely on trust, but not supported by real assets such as gold, silver, oil, or something substantial and real.

These lessons are there for anyone who is willing and open to see, whether they remain underexposed is not important. Ignoring them is at one’s own peril.

As Ayn Rand said, “You can ignore reality, but you cannot ignore the consequences of ignoring reality.” Haven’t the banking and political powers-that-be ignored for far too long the reality that money must be backed by something substantial, such as gold? The consequences of ignoring that simple reality are: massive and un-payable debts, increasing instability in banking and political institutions, monetary failures, insolvent governments, evaporation of individual savings and retirement assets, and bankrupt citizens and businesses. The IMF-ECB-Cyprus fiasco just accelerated the pace at which those destructive consequences will impact our lives.

21 thoughts on “10 Lessons Cyprus Is Teaching The World About Money & Gold”

11. Lenders do not have to pay interest on your accounts. Case in point, the German 2 yr Bund just went NIRP. If the entire Eurozone is under the threat of deposit haircuts and outright threats, then the safe harbor of a German bond needs pay nothing. Coming to a city or country near you. Watch yields on your accounts, bond funds and MMA go negative
Now you can get CURRENCY CIALIS at any bank on the continent
A low dose of CURRENCY CIALIS means you’re ready 24/7 to see your FIAT vaporize.
A high dose of CURRENCY CIALIS means an all expense trip to the currency hell of Cyprus

What if it’s different this time…on this particular metals decline… What if, JP Morgue et all are planning to keep the paper price down this time until it is horribly obvious even well into obvious shortages of the physical metal. Then, at a point where the beginnings of a public outcry get deafening at the obvious mismatch between price and supply, they go ahead and pull an over the weekend revaluation here in the US. The chance of a banking holiday during this is probably 80% likely. Anyone not see this as a possibility??

No, they won’t and for good reason. Too many oldsters were getting mugged or their homes burgled by 20-something punks right after the 1st of the month. Now, with direct deposit, such crimes are WAY down. Direct deposits can come any time, so no one knows when you are due to receive it. Yes, some prefer a check and it is unfortunate that those who do can’t get one. Me, I just let the direct deposit sit in the checking account for a couple of months and then convert it to gold or silver. That works well and if I keep the volume up, I can get free shipping.

Author implies that it could happen here. Big difference is that Cyprus gave up their right to print their own money when they joined the euro in 2008. In effect they gave up their sovereignty to the globalist bankers. Not wise. Now, 5yrs 3mos later their done.

U.S. can always print money to provide liquidity to even insolvent banks. Eurozone countries no longer have that independent option.

So, what’s the real play in Cyprus. What’s 3 moves down the chessboard? ZeroHedge reported the Russians were allowed to quietly remove their money last week. So, is Cyprus a test case some have opined? Or is it Germany’s first step to extricate themselves from the euro as others have opined? Or is it bailing-in to end QE bail-outs? Or are they just idiots?

Cyprus is definitely more than meets the eye. The amounts are trivial in the scheme of things. I believe this was a test case to see what public reaction to outright theft would be.
It’s been a huge failure and the contagion will spread. Capital controls will follow Europewide, maybe further.

It is both interesting and curious that many artiles of late addressing banking are mentioning in a somewhat “oh, by the way” manner” that a customer’s savings and demand deposits do not actually belong to the customer. That once a customer deposits funds into t bank , those funds no longer belong to the customer but rather to the bank. Upon discovering this only a few years ago my original reaction was WTF is this? Since when? Since 1913? Has this been a secret for the last 100 years ? Have citizens all been delued and deceived into believing that their funds actually belonged to them and could be “demanded” at any point in time? Again, curiously we are being told by many that this is actually the case. It is safe to say that 99.999%+ (beyond 3 sigma) of all banking customers are inculpably ignorant of this fact which has been deliberately hiddent from them for so long. Many bankers themselves have no idea that such is the case. To my mind such a lack of understanding by almost everyone on this issue is testiment to the immmensity of the con-job that has been perpetrated on bank customers everywhere. This is an issue as large as the public ignorance of the fractional reserve mechanism or the inflation factor built into the system. Once understood, this issue is hugh and should motivate everyone to withdraw all funds from all banks everywhere. But alas, this won’t happen as the public has no knowledge of the facts.
Banking is inherently fraudulent

You’re being too kind J in Philly. If it was just the banks, that would be one thing, but the entire income tax system is tied at the hip to Federal Reserve Notes. One “volunteers” for the income tax by using FRNs. People do not understand that either.

Right you are Ugly Dog. President Wilson himself did not know the extent of what he had done by approving theFederal Reserve Act until after he did it. As a result Americans have been screwed for all time. What mysifies me is why more intellegent men have not called BS on the whole scheme and stood in favor of rescinding the act. The only answer seems to be that they might end up dead if they do. Cite: Kennedy, Garfield, Lincoln etal.

Yes, the banksters are ready, willing, and able to kill people who dare to stand in the way of them looting the national treasury. This is why some people favor having them ALL arrested on the same dark night and hung the following morning. Only in that way can those who bring justice to them survive the effort.

Wilson was a very smart guy. I do not buy the idea that he did not know what he was doing. He knew. He just did not want to own up to it.

As to why others did not call BS on it, maybe they profited from it, so why upset the apple cart?

We have other examples of this, including the looting of the US Social Security trust fund by LBJ back in the mid 1960s. Trillions of dollars have since been removed from that fund, put into the general fund, and squandered while some IOUs on future generations got put into the trust fund. Talk about taxation without representation! In spite of this egregious political move, NO ONE since has called this BS, which it is, or tried to undo it. Shame on them all.

Banking works best when done locally. All of the BS that is going on is happening at the national level. If you need banking services, get them from a local credit union or perhaps a local bank if it has a good rep. Do not under any circumstances use a BIG bank of any kind.

The Federal Reserve Act of 1913 turns one hundred on 23DEC2013…
Ahhh 1913….In February the 16th Amendment, which states “Congress shall have the power to lay and collect tax on incomes, from whatever sources derived, without apportionment among the several states, and without regard to any census or enumeration”, was ratified by the necessary 3/4 of the states.

On October 3rd Congress passed the Revenue Act of 1913, which created the first permanent US income tax. Under this act, the first $3000 of income for single persons and $4000 for married couples was exempt from taxation. A “normal” tax of 1% was applied to income above $3000 or $4000, and a “super” tax of from 1-6% was applied to income in excess of $20,000. Deductions were allowed for business expenses (including depreciation), interest paid on “personal indebtedness”, all national, state, county, school and municipal taxes paid, casualty losses, and worthless debt. In the first year only 1 out of every 271 American citizens were taxed and $28 Million in revenue was raised.

From December 1912 to December 1913, the Glass-Willis proposal was hotly debated, molded and reshaped. By December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law, it stood as a classic example of compromise—a decentralized central bank that balanced the competing interests of private banks and populist sentiment.

I’ve been thinking a bit more about the Cyprus mess and why we didn’t have massive runs Monday and Tuesday. We know that the PIIGS economies are getting worse by the day with banks losing more capital, becoming weaker month by month. This will not self correct since they all have Debt to GDP ratios well in excess of 100% limited their growth.
That meteroid that exploded over Russia a few weeks seems a propitious omen. It burst with a force of about 300,000 tons of TNT. 65 million years ago the dinosaurs were wiped out by an asteroid 6 miles in diameter. The dinosaurs were suffering from some serious climatic change, stressing them for thousands of years prior to the hit. That asteroid just pushed them over the cliff.
It’s like Cyprus was a meteorite strike, over the horizon, but visible to all. The Euro zone is streesed, weakening but not topped over yet. There is a good possibility that the fatal blow of Cyprus has not hit home yet. People are thinking ‘wow, took what happened, glad it wasn’t me’ Their Normalcy Bias kicks in overtime to help them rationalize their present actions. They look the other way, listen to the politicians announce that all is well and the problem is fixed.
‘Besides which, it’s just a little tiny island, half Greek and you know how they are.’
I think that many euro zone folks will attempt to deny this disaster. Deisel-boom said all Europeans will be subject to these regulations and extractions just paid on Cyprus. The people will hear what they want to hear, thinking they can step back from the table, like I noted in the Big Tell, but like all amateurs, will step back too late. I am sure that very smart statisticians in the German heirarchy are performing very serious gaming theory to predict the reactions of the 300 million people who like in the Eurozone. They are trying to predict the reactions to this theft. If the people are not overly upset, the bean counters will assume they’ve won.
I think the people most likely to be impacted by the Cyprus theft, the inhabitants in the PIIGS, will,like most piggies, thank their lucky stars that it was not them taken to the slaughter house.
But the banks and economic situation is deteriorating in the EU. The wealthiest will move the funds from banks already stresses by 35 to 1 capital ratios. This will slow the economy even more as the lifeblood of these banks will be drained to safer climes.
It may be several weeks before the next shoe drops. This is going to be much like the assurances issued by Draghi when the LTRO came into being, the banks were destressed temorarily and with 3 weeks the Greek situation exploded, destroying the assurances promoted by Draghi that all the euro problems behind them
All the assurances from the eurozone will go for naught as the next shoe drop will create the real bank run. It may be a few weeks or maybe a couple of months as the stressed systems hang together for a short while. But this Pandora’s box is open and cannot be closed by words or deeds
This could also be a tipping point towards higher inflation. If people cannot trust leaving their savings in banks with the potential of theft, they may see to buy assets. If this event increases the velocity of money and reduces peoples confidence in these currencies due to potential confiscations, the flow of trillions into hard asset could kick off some serious inflationary pressures.
Italy still concerns me since the Banca Monti Peschi lost another 2 billion plus euros and its on its 4 bailout. This bank could be the one that forces the ECB and IMF to require a bail in to rescue this bank. It is a disaster going someplace to happen. If this bank and Unicredit get some serious bank runs they will be wiped out as their capital balances are well under safety levels

The quid pro quo in banking is that any money deposited in the bank is safe from loss. As soon as that agreement is violated, there is no longer any reason to keep more than a minimal amount of money in the banks. We can all put our money at risk in various investments that actually have a chance of paying us for taking that risk. We do NOT have to accept the risk inherent in banks today for the pittance they offer in interest. As has been said, “I am more interested in the return OF my money than the return ON my money”. Since the banks seem disinterested in following through on their promise to keep our deposited money segregated and safe, we should all feel free to remove our money from the harms way situation that the banks have now created.

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